News analysis: Ministers unexpectedly lay off Italy deficit woes with European elections looming

by Eric J. Lyman

ROME, March 13 (Xinhua) -- Approaching European parliamentary elections may have bought some time for Italy to work through growing deficit problems, according to analysts.

Italy's budget plan says the country's deficit will be worth no more than 2.05 percent of the country's gross domestic product this year, a figure reached after eight weeks of contentious negotiations last year with the European Commission. But that figure -- considered ambitious even at the time -- was based on estimates the Italian economy would grow at least 1 percent this year.

Now, almost all of the major investment banks, multilateral organizations, and ratings agencies predict the economy will either contract this year or grow very modestly, no more than 0.5 percent. If that indeed happens, it will make respecting the deficit target impossible without drastic spending cuts.

The topic was expected to be on the agenda at this week's gathering of the Eurogroup finance ministers. Leading up to the Eurogroup talks, Wopke Hoekstra, finance minister for the Netherlands, filed paperwork to stress Italy defend its spending plans at the talks, while the latest European Commission estimates show that without major changes Italy will have the largest budget deficit in the European Union by 2020, surpassing Greece.

Instead, nothing happened.

"The fight wasn't dropped, it was postponed," Giuseppe De Arcangelis, an economist with Rome's La Sapienza University, told Xinhua. "I just don't think ministers had a desire to deal with this difficult issue now, with elections approaching. deficits are a sensitive issue in several European countries, not just Italy."

De Arcangelis said countries with their own deficit problems will be less likely to call attention to the problems in Italy. Additionally, he said, ministers would also have to weigh how holding Italy to task would play in terms of their own elections.

"Almost everything that takes place in Europe is going to take place in a context of the political implications between now and May," said De Arcangelis, referring to the scheduled date for the European Parliament vote.

What happens after the vote will depend a lot on the results of the election, according to Francesco Filippucci, a fellow with the think tank Tortuga.

"Depending which one which parties come out of the elections strongest, Italy could end up looking even more critical of the European Union than it is today, or less," Filippucci said in an interview.

Filippucci said it was most likely the nationalist, anti-migrant League would emerge from the May vote stronger, making Italy more skeptical of European Union rules. That could make Eurogroup meeting held after mid-year more trying than the last talks were for Italy.

"It's not just Italy that could change," De Arcangelis said. "The whole makeup and political bent of the European Commission could be different after the elections."

"I hope we'll see market discipline when it comes to yields and the spreads with government debt," he said. "Uncertain markets would make the election more chaotic."